Sell, Keith, Sell
When the story is fully told, I think Keith Turley's greed will rival Charles Keating's penchant for buying U.S. senators in sheer gall.
The head of Arizona's largest corporation, Pinnacle West, Turley recently disclosed in documents filed with the Securities and Exchange Commission that he expects you and me and all of America's taxpayers to pay his billion-dollar gambling losses.
According to the little-discussed federal report, Form 10-Q, Pinnacle West admits that its bleeding savings and loan, MeraBank, has more than $1 billion in nonperforming loans.
Regulators, both federal and state, refused to guesstimate how bad the final debt of MeraBank will become in Arizona's plunging economy. But the bank's own board of directors has asked Pinnacle West for an infusion of $600 million.
More ominously, regulators from the national Office of Thrift Supervision of San Francisco have demanded that Pinnacle West prop up MeraBank immediately with more than one-half billion dollars in cash. The government has imposed a deadline of December 7.
Pinnacle West already had $74 million coming due in obligations it could not meet without outside financing, a prospect even it acknowledges as "seriously in question."
Putting the $74 million question aside for the moment, Turley has taken the position that the federal government's call for a half billion dollars is some sort of mistake. Surely the laws that apply to the rest of America's savings and loans do not apply to him.
Insisting that the federal government renegotiate its position and cut a special deal for Pinnacle West, Turley concludes in the Form 10-Q, "If an agreement is not reached in the near future, the Company may be forced to seek resolution of these issues through a bankruptcy proceeding."
Since deposits in savings and loans like MeraBank are federally insured, taxpayers will make good Turley's debt if he folds his tent.
None of this is necessary.
Pinnacle West has only one profitable business, the electric utility Arizona Public Service (APS). A Northwest company, PacifiCorp, offered to purchase APS for $1.7 billion. The proceeds from this sale would cover Pinnacle West's debts but, so far, Turley refuses to sell.
The way that Turley sees it, he should be able to keep all the profits of APS, while giving us all the debts of MeraBank. The man's greed does not shame him. At every Phoenix Suns home game, Turley sits at midcourt, in the first row in the very best seat in the house. On Sundays you can find him in any one of three exclusive (half million dollars each) skyboxes he keeps for Phoenix Cardinals football games.
Turley's taste for a big-cigar lifestyle wouldn't be nearly as grating if he earned it the old-fashioned way. But Turley never made an honest nickel in the competitive marketplace at any time in his adult life.
As the head of Arizona Public Service, Turley was given a monopoly by the state. No one else could sell electricity in the APS service area. The state also guaranteed the utility a profit and hiked all of our electric bills until APS became one of the most expensive generators in the nation.
Tractor factory operators in Soviet Russia don't get the sort of government handouts that Keith Turley takes for granted. In 1973 APS began purchasing land for the biggest nuclear power plant in the world. Because Phoenix is about fifty miles downwind of this particular site, an accident, like Chernobyl, would smother the metropolis in a radioactive cloud. In 1979 word leaked out that APS had bought the land for Palo Verde from Turley's brother-in-law. The $9 billion plant, like some pork-barrel nightmare from the Department of Defense, has sat broken and idle most of the year.
By 1985 APS was generating so much extra cash that it formed a holding company, Pinnacle West, to shelter its profits. State regulators had no say in what Pinnacle West did with these millions.
Worried Corporation Commissioners were assured by APS' chief financial officer, Henry Sargent, that investments in other companies were "trivial" and would stay "de minimus." Sargent's assurances were de bunk.
By the end of that year, on December 13, 1985, the Energy Daily reported on its front page a speech by Sargent.
Describing the effect of putting APS into the Pinnacle West holding company, Sargent smirked and said the paper-shell company "gives you the opportunity to lose money in businesses that are more fun." Speaking before an audience of his peers, Sargent cautioned those considering the same move to "avoid going to your commission for approval." He added that in order to skirt community opposition there should be no leaks "until the last possible moment and don't make a big deal of it in the press. Don't have a press conference." Even shareholders could be kept in the dark if the restructuring wasn't mentioned until the end of a proxy statement because "nobody reads a proxy statement beyond page seven."
In short order, Turley and Pinnacle West bought into uranium mining, created a land-development company that purchased enormous tracts of risky Arizona real estate, began a shoot-the-moon venture-capital company and swallowed the state's largest savings and loan, paying twice book value.
Soon the directors and corporate officers of Pinnacle West offered themselves home mortgage loans at the astounding rate of 6.64 percent.
Nor was that the only benefit to be gleaned. In fiscal years '87 and '88 Pinnacle West showed combined profits of $552 million based largely upon the government-imposed profits of APS. According to the highly respected Citizens for Tax Justice in Washington, D.C., Pinnacle West paid no federal income taxes during that period. In fact, Pinnacle West took in a $10 million refund. Turley and the boys were rolling the dice, speculating, to become richer than Pharaoh and they were doing it off the profits from ever-growing electric bills.
Monthly bills of $300 to $400 to cool an average home are now commonplace. In central Phoenix, an apartment complex with 132 units of what is euphemistically referred to as "affordable housing" finds it near impossible to keep tenants in the summer because the air-conditioning bill is higher than the rent. (Not all of the homeless, you see, were displaced from mental institutions.) And those worried about utility bills should know that APS is expected shortly to ask for a phased-in 20 percent increase in rates. PacifiCorp, whose electric rates are about half of APS', has promised a maximum rate increase of 2 percent if it buys APS.
We are told by state regulators that Pinnacle West cannot raid APS for money to revive its failing businesses. Therefore we are not supposed to worry about Arizona's largest utility. Nonetheless, the Corporation Commission still allows APS to divert $200 million a year in dividends to the parent holding company.
And there are other costs tied to Turley's gambles. APS has laid off more than 1,200 people in the past two years. Because of Pinnacle West's terrible collapse, APS' securities were downgraded by Standard and Poors, Moody's, as well as Duff and Phelps. This negative review by the financial services industry will be reflected in higher utility bills. And next Thursday, December 7, the feds are threatening to pull the plug on MeraBank. No one knows if they will actually follow through; Corporation Commissioner Renz Jennings describes the face-off between Pinnacle West and the U.S. government as "blinksmanship" that will cost consumers no matter how it turns out. The thrift's bad loans stand currently at $1 billion and the meter is running.
It is time for Keith Turley to sell APS to PacifiCorp and to pay off his debts at Pinnacle West.
But how do you tell a pig who has always slopped at a monopoly-financed trough that the swill is gone?
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